In the B2B world, generally speaking, buyers and suppliers both understand the benefits of moving to electronic payments. These benefits include higher rates of straight-through processing, reduced bank fees, improved security, quicker settlement, and reduced costs. Typically, electronic invoice payments are made over ACH networks. Now, in addition to the traditional ACH payment method, virtual card technology is being used to make invoice payments. This is one of the hottest areas in B2B AP payments today.
The rebates generated by card programs account for a large portion of their appeal. Rebate amounts vary based on payment volumes and rebate percentages (which themselves vary based on credit terms) and make it possible to transform an A/P department from a cost center to a revenue center. But upon learning about this payment option, most everyone asks “Why would a vendor accept a card payment for an invoice and pay the interchange fee?” There are several reasons.
Many suppliers already accept invoice payments via card and will accept them from you too. Or they may place a high value on you as a customer and wish to accommodate your payment preference. They may do the cost/benefit analysis regarding the interchange fee and decide that their margin is sufficient. Or perhaps you have enticed them with the offer of better terms or a higher concentration of spend.
But there is another important reason that is not immediately apparent. Suppliers do want to receive electronic payments. They do want to reduce their lockbox fees. They do want to automate their A/R process and achieve higher straight-through processing rates. They do want their payments to clear more quickly.
Using ACH means providing banking information. Whether housed by you in your ERP system or housed in a third-party database, some suppliers are cautious about sharing their bank account and routing information. Following best practices such as the use of ACH debit blocks or debit filters and using reverse positive pay go a long way toward mitigating this risk. In fact, the 2009 AFP Payments Fraud and Control Survey indicated that ACH credits enjoyed the second lowest incidence of payment fraud. Yet many suppliers prefer to accept payments via card because it allows them to enjoy the advantages of electronic payments while addressing their need to keep their banking information private.
What about your company? Are you willing to share your banking information with your customers? Is this a hurdle? Could accepting invoice payments via card provide a solution? Tell us what you think!
Director, Product Management
SunGard AvantGard Payment Services